Ontario wholesale power market performing well, report shows

TORONTO, June 12, 2002 — Navigant Consulting Inc. recently released a new industry publication entitled Ontario Power Navigator, a periodic report that evaluates and summarizes the recently opened Ontario wholesale power market. The issue contains statistical analysis, comparative studies with neighboring markets and forecasts of market conditions in the summer months.

The Ontario wholesale power market experienced relatively low power prices for the month of May, typical of a shoulder month. Energy prices in May averaged $29.19/MWh. This compares to the approximately $43/MWh energy price that was reflected in most Ontario customer’s electricity rates prior to market opening.

Moderate weather throughout this period and spring run-off that increased output at hydroelectric generating stations resulted in relatively high reserve margins, contributing to these low prices. “One should not read too much into these price levels other than the wholesale market appears to be operating well,” stated John Dalton, Managing Director of Navigant Consulting, Ltd., the Canadian division of Navigant Consulting, Inc. “This summer poses significant market price risks given anticipated tight reserve margins.”

May reserve margins were forecast by the Ontario Independent Market Operator (IMO) to be “more than adequate,” ranging from 20 percent to 30 percent. A reserve margin of 20 percent is generally considered adequate to cover the uncertainty associated with customer demand given variable weather conditions and unscheduled generator outages. Lower reserve margins generally require more expensive generating units to operate, thereby increasing market prices. By comparison, July reserve margins are forecast to range from 11 percent to 12 percent.

However, hot weather over the next several months could expose the market to low reserve margins, particularly over the next several weeks where a number of units are unavailable as a result of scheduled maintenance. With these forecast reserve margins, prolonged hot weather or high levels of generator outages will expose the market to significantly higher prices.

In the summer, a 1 degree Celsius increase in temperature results in an approximate 400MW increase in load, or 1.6 percent decrease in reserve margin. A prominent long-range weather forecasting service expects temperatures in the Northeast this summer to be warmer than normal.

To obtain a copy of the report, please contact Alison Chick at achick@navigantconsulting.com.

About Navigant Consulting, Ltd.
Navigant Consulting, Ltd. (NCL) is the Canadian division of Navigant Consulting, Inc. NCL is a management consulting firm that provides a wide range of services to the energy industry.

As experts on Canadian interconnected power and gas markets, NCL consultants produce valuable analysis and market forecasts. In addition, NCL is a provider in sophisticated energy procurement consulting and developing hedging strategies for its clientele.

Other professional services offered include market design, energy policy, transmission pricing, generation project, feasibility studies and regulatory support.

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